DAILY US OPENING NEWS: This weekend saw elections in Germany and New Zealand whereby the incumbents both claimed victory but failed to secure a majority.

25th September 2017

This weekend saw elections in Germany and New Zealand whereby the incumbents both claimed victory but failed to secure a majority.

Fixed Income up, as equities recover

Looking ahead, highlights will be a slew of central bank speak

POLITICS

Germany

German election results showed German Chancellor Merkel is set for a 4th term after her CDU/CSU won the most votes, but performed weaker than expected and will need to undertake coalition discussions. In terms of the number of seats, CDU/CSU won 246 seats, SPD won 153 seats, AfD won 94 seats, FDP won 80 seats, Die Linke won 69 seats and Grune won 67 seats. (Newswires/Twitter) Given the poor performance of the SPD (worst performance since WW2), the party have refused to enter into a Grand Coalition and instead will form the opposition (to avoid AfD becoming the opposition. As such, Merkel will now have to try and form a ‘Jamaica’ Coalition with the FDP and Green parties. However, the FDP initially distanced themselves from forming such an alliance.

According to a journalist on Twitter, the CSU are considering their historical alliance with the CDU following yesterday's result. Further reports suggest that the CSU are set to vote on their alliance with Merkel's CDU. (Twitter)

However, further reports circulated that CSU Leader Seehofer Says party will remain partner with Merkel's CDU, with Seehofer stating to want CSU leadership vote on joint caucus.

New Zealand

New Zealand held its general election on Saturday which resulted to a hung parliament, as no party gained the 61 seats needed for a majority. In terms of the projected results, the incumbent National Party won 58 seats, main opposition Labour Party won 45 seats, New Zealand First won 9 seats, Green Party won 7 seats, ACT won 1 seat and the Maori Party won 0 seats.

Japan

Japan PM Abe is to dissolve lower house of parliament on September 28th and will call a snap election

GEOPOLITICAL

North Korea’s Foreign Minister stated that President Trump's labelling of Kim Jong Un as ‘Rocketman’ has made North Korean rockets’ visit to entire US mainland inevitable, while there were also separate reports that US Air Force B-1B Lancer Bombers flew over the waters east of North Korea on Saturday. (Newswires)

North Korea reportedly sent an open letter to foreign countries to fulfil their duty in realizing international justice and peace against Trump threat. (KCNA)

ASIA-PACIFIC

Asia equity markets began the week subdued as FX took much of the focus amid post-election hangovers from New Zealand and Germany where the incumbents in both won most votes but failed to get majorities, which moves the process on to coalition negotiations. ASX 200 (+0.03%) and Nikkei 225 (+0.5%) were positive with the latter the outperformer on JPY weakness, while a 4-month high Japanese Nikkei Manufacturing PMI and reports that PM Abe is considering a JPY 2tln economic package added to upbeat tone. Chinese markets were subdued with Shanghai Comp. (-0.3%) and Hang Seng (-1.3%) negative, as property names suffered from tighter restriction announcements, although the losses in the mainland were stemmed following a firm liquidity operation heading into next week’s National Day holidays. 10yr JGBs were relatively flat as pressure in the safe-haven from a positive risk sentiment in Japan, was counterbalanced by the BoJ’s presence in the market for a respectable amount just shy of JPY1trl in JGBs with 1yr-10yr maturities.

Republican tax negotiators are eyeing a 20% tax rate, according to sources. N.b. this would be higher than desired by President Trump. (Newswires) US President Trump stated that tax plan was totally finalized. (Fox News)

US issued proclamation banning travel to the US for citizens from North Korea, Venezuela, Iran, Chad, Syria, Libya, Somalia and Yemen. (Newswires)

US Senators Graham and Cassidy are said to have revised the Obamacare repeal bill after reports which suggested several senators opposed an earlier Obamacare repeal plan drafted by Sens. Bill Cassidy and Lindsey Graham. (Newswires)

A tepid start for European stock with a sense of anxiety among investors following the result of the German election and a surprise rise in support for the far-right AFD party, subsequently, Chancellor Merkel has been left with a less stable position. Notable underperformers have been financial and commodity related names. However, the initial opening gap in European trade was filled through the session, aided by the performance in oil markets.

FIXED INCOME

A slight tick lower in German yields have supported bunds this morning with the yield modestly flatter. A soft start for peripherals as spreads widen against their German counterpart with Spain and Italy wider by 1.6bps and 1bps respectively. Further, Saudi Arabia plan to return to the global conventional bond market, as the Kingdom seeks to address the budget deficit and underpin economic reform efforts.

Bunds saw a bid following the results of the German Ifo, with extensions of the move evident of political German uncertainty, as Twitter reports stated that the CSU are considering their historical alliance with the CDU following yesterday's result.

FX

EUR suffered following the weekend results despite Chancellor Merkel being set for a fourth term. Merkel’s CDU/CSU performed weaker than expected and will now need to undertake coalition discussions, likely set to attempt to form a ‘Jamaica’ Coalition with the FDP and Green Parties, with FDP being an initial hurdle.

EUR/USD rejected 1.20 on Friday, and struggled as Asian trade began, trading through 1.19, now consolidating just above these levels.

EUR/GBP saw similar price action, finding support ahead of September’s lows. A break through the 0.8774 area could see trade once again in the start of 2017’s trading range.

NZD was also heavy following their election results, and in line with Germany, despite a victory for the National Party, a majority was also not secured. This places the next government at the hands of New Zealand First Party’s leader and effective ‘kingmaker’ Winston Peters, who is all too familiar with this obligation having supported both the National Party and main opposition Labour in past governments.

NZD/USD find some support following initial selling pressure, support at September 18th’s low held, with some buying evident around these levels.

AUD/NZD held just through 1.0800, yet continuing to show a downward trend following the stacked offers seen around 1.1150 through September.

COMMODITIES

Commodities were mostly range-bound which kept WTI subdued, while copper was unchanged amid a subdued risk tone. Elsewhere, gold (-0.3%) was pressured from early trade due to a firmer greenback, after the currency benefitted from political uncertainty weighing on a couple of its major counterparts post-elections.